Tax Law Alert: LIRS Can Now Freeze Defaulters’ Bank Funds – Here’s Why

The Lagos State Internal Revenue Service (LIRS) has reiterated its authority to direct banks, employers, and other third parties to remit funds belonging to tax defaulters to the state government, emphasizing that the provision is longstanding and not a new policy.

Speaking with reporters, Tokunbo Akande, Special Adviser to the Chairman of LIRS, explained that the mechanism is activated only when a taxpayer has an established tax liability and is not applied arbitrarily. “What you need to know is that it’s nothing new because the law has always been there,” he said.

Akande clarified that third parties, including tenants, employers, customers, and financial institutions, may only be approached where there is a confirmed and final tax debt involving a taxpayer who fails to comply. “If there is an established tax liability against Mr X and Mr X is expecting payment from Mr Y, and that information is known to the tax authority, the tax authority can write to Mr Y and appoint him as an agent of government,” he said.

He further noted that the power of substitution is not unique to Lagos or Nigeria. “It has always been there. It’s not peculiar to Nigeria,” Akande added. He assured taxpayers that safeguards exist to prevent abuse, emphasizing that the measure applies strictly to confirmed tax liabilities and not to random individuals.

The clarification follows a public notice issued by LIRS, which drew significant attention on social media. The notice, referenced LIRS/003/01/2026 and titled ‘Power of Substitution pursuant to Section 60 of the Nigeria Tax Administration Act, 2025,’ was signed by LIRS Chairman Ayodele Subair and dated January 21, 2026.

The notice informed the public, particularly employers, financial institutions, business operators, and tax agents, of the provisions of Section 60 of the Nigeria Tax Administration Act. It empowers the LIRS to instruct any person holding money on behalf of, or owing money to, a taxpayer who has failed to settle a final tax liability, to remit such funds to the agency.

The LIRS described the power of substitution as a lawful mechanism to ensure efficient recovery of unpaid taxes. The notice listed banks, employers, tenants, debtors, customers, agents, and business partners as potential recipients of substitution directives and warned that failure to comply constitutes an offence under the Act. It also outlined obligations for those served with such notices, including timelines, reporting requirements, and penalties for non-compliance.

This development comes amid the implementation of the Nigeria Tax Administration Act, 2025, which seeks to harmonize tax administration nationwide and strengthen compliance and revenue collection at both federal and state levels.